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A Beginner’s Guide To Building A Strong Distribution Channel
the product distribution process has evolved considerably over the years; taking the shift from first to retail distributors then direct to stores, and now direct to consumers.
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For any first-time entrepreneur, coming up with a killer idea is only half battle won. From setting up operations to building a team to engaging with customers, there are a bewildering number of steps to follow post the ideation stage. When it comes to product-based companies, one of the main challenges of this process lies in building a strong distribution channel that can ensure seamless movement of goods from the manufacturing point to the warehouse to the end-consumer.
Interestingly, the product distribution process has evolved considerably over the years; taking the shift from first to retail distributors then direct to stores, and now direct to consumers. Earlier, the only way brands managed to cover a part of a city was through local distributors. Then organized retail chains such as Big Bazaar and Hometown came into the picture, enabling brands to expand their presence to multiple cities at one go. Cut to 2021, young and up-and-coming brands can reach their target customers anywhere in the world through e-commerce.
At a fundamental level, online and modern trade channels have gained traction because it help brands aggregate their target audience. This explains why new-age brands have adapted to the online medium as fish takes to water. However, the growing inclination towards the online medium has kept brands from tapping into the opportunities presented by traditional distribution channels. Companies, especially the budding ones, must leverage the mix of both modern and traditional distribution channels to maximize their reach. As we delve deeper into this subject, let’s take a look at some of the misconceptions surrounding the retail distribution and how brands can adopt smart hacks to get the best out of their budget.
Misconception #1: Retail is expensive: It is indeed expensive if you approach organised retail where the bulk of the money is coughed up as ‘listing fees’. Partnerships with large retails can prove to be an exorbitant affair and make a large dent in the revenue margin.
Hack: Small-scale brands should opt for stand-alone retail stores that have an SEC A TG but no hang-ups of listing fees. While these stores fall in the unorganized retail category, they have adapted to modern retail. They feature automated cash counters, a wide assortment of products, clean aisles, and most importantly, provide direct access to a dedicated customer base. Once brands have found the right product fit, they can easily approach these stand-alone stores to forge into new markets.
Misconception #2: Distribution takes time to build: Again true, but it is a channel that yields dividends in the long run. Most D2C brands are dependent solely on digital platforms such as Facebook and Google or marketplaces to drive reach; the power dynamics are never in favour of the brand. However, once a retail channel is built, the sales are predictable, regular and recurring. LTV (Lifetime value) of a retail store is much more predictable than the separate customer base of a brand and hence a safer return on investment.
Hack: There are many B2B online marketplaces that brands can leverage to build a pan-India distribution network at the fraction of time and cost. These tech-driven platforms typically serve the C, D, and E class of outlets along with small Kirana stores.
Misconception #3: Retail needs large working capital: It is not entirely a misconception. Brands, especially emerging businesses, are required to give credit to distributors as they pay the suppliers in cash. This adds up to the capital.
Hack: Making use of bill discounting, many banks and new-age finance companies offer discount invoices if brands pay upfront. There is another, albeit slightly harder, way around this. Brands can make distributors pay upfront. While this will take time and effort, but this strategy will prove to be beneficial in the long run. They can start by giving discounts on cash payments.
My final comments on a brand’s choice of the channel will be “it depends”. However, it goes without saying that brands have to leverage all the channels they can access for an optimal reach while making profits. There is no playbook to follow, but the rule of thumb is to first weigh in the brand objectives and focus on the stage of the brand lifecycle and only then decide on the channel mix.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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